tv Nightly Business Report PBS January 25, 2012 6:30pm-7:00pm PST
>> susie: the federal reserve pledges rock-bottom interest rates through 2014, signaling a full recovery is still years away for the u.s. economy. >> tom: and, netflix delivers for investors. customers are signing up for the service again and the stock is rallying. it's "nightly business report" for wednesday, january 25. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
captioning sponsored by wpbt >> susie: good evening, everyone. it's going to take a few more years for the u.s. economy to recover. that's what the federal reserve said today, wrapping its two-day policy meeting. policymakers said they would keep interest rates near zero for at least two more years. tom, the fed hopes super-low rates will make it easier for consumers and businesses to borrow money and then spend it boosting growth. >> tom: susie, this timetable is much longer than investors expected. the fed was expected to start raising rates by mid 2013, but a quick look at the fed's economic outlook explains what's behind the change in plans. the central bank described economic growth in the coming months as modest.
unemployment as still high and inflation subdued. >> susie: also today, the fed made history by releasing the forecasts of its key policymakers, showing that only a handful want to raise interest rates quickly and most prefer to wait until 2014 or longer. darren gersh reports. >> reporter: for the first time, chairman ben bernanke and his colleagues at the federal reserve laid out their long-run goals for the economy. their aim? an inflation rate of 2% and an unemployment rate somewhere between 5.2 and 6%. you could think of those numbers as the fed's definition of what a normal economy should look like. and that puts bernanke in a tough spot, because fed policymakers forecast they will not reach their own goals for the economy for at least three years. >> the framework makes very clear that we need to be thinking about ways in which we can provide further stimulus if we don't get some improvement in the pace of recovery and normalization of inflation.
>> reporter: markets, caught by surprise by the fed's promise to keep rates low through late 2014, initially rallied on the news, sending the interest rate on five-year treasury notes to a record low. >> the market did respond positively. equities, stocks went higher, longer-term yields on government bonds fell, so the market responded positively and one thing about monetary policy is once it's announced, it's already now reflected in the market. >> reporter: but some of that initial good news was taken back once markets took a closer look at fed policymakers' forecasts for interest rates. this was the first time the fed released this information, and it shows six fed officials want to start raising rates this year or next, five in 2014, and six in 2015 or 2016. >> the dispersion was surprising. we were expecting a dispersed set of opinions, but it was the range of views that was so surprising, and i think really what it means is that the different f.o.m.c. members have
very different views on how the economy is functioning right now. >> reporter: in his news conference, bernanke said the federal reserve would consider whether to buy more bonds in the future, hoping to drive down interest rates and help the economy return to normal. asked if that policy, known as "quantitative easing," would hurt savers by lowering their returns, bernanke said not necessarily. >> the savers in our economy are dependent on a healthy economy in order to get adequate returns. in particular, people own stocks and corporate bonds and other securities as well as, say, treasury securities, and if our economy is in really bad shape, then they're not going to get good returns on those investments. >> reporter: chairman bernanke says he and his colleagues have to balance the risk of inflation against the problem of high unemployment, and that could mean inflation might rise slightly above the fed's 2% target in order to help reduce the very high unemployment rate. darren gersh, "nightly business report," washington.
>> susie: joining us now with more analysis of the fed decision? diane swonk, chief economist at mesirow financial, and david kelly, chief market strategist at j.p. morgan funds. diane, david, nice to have you with us, and lots to talk about. so let's just get going. diane, i'll begin with you. we've seen month of economic reports showing the u.s. economy is getting better. based on what the feds said today is it saying it's having its doubts? >> certainly the fed marked down its forecast from last november which was already weak. and i think what we're seeing is what we've seen many times, instead of henling in the other direction, in 2010 we thought the economy was reaccelerating and then we lost momentum at the beginning of 2011. similar experience at the end of 2011, we finally saw a blip in growth and there's a fear that we'll lose momentum again as we move into 2012, and that's exactly what we are seeing out there. >> susie: david, last night president obama says that the economy is getting stronger, and today chairman bernanke
said that it's too soon to say that we're in a stronger new phase. what's your take on all this? >> well, i actually think the economy is doing a little better than that. i do recognize that in the first quarter growth was a bit slower than in the fourth. but i think fourth quarter growth, we're going to get this on friday, could be above 3%. since our last meeting what we've seen is a reduction fears about what's going on in europe, we've seen consumer confidence move up some, we've seen a better than expected employment report for december. what's puzzling to me is none of this was reflected in what the feds said today. i think what they're trying to do is trying to talk down the economy to justify a policy of being easy to bring down long-term rates to move up the economy, and that doesn't make any sense to me at all. >> susie: i don't think it makes any sense, diane, to the average americans listening to this and saying may the economy is in worst shape than i thought and maybe i should hold off on buying a home or car or starting a business. so do you think that the fed chairman is creating a crisis
of confidence? >> i don't think he's creating a crisis of confidence, but i do understand the confusion. this is the first time the fed has been communicating in this way and there's going to be confusion when the fed does that. what they're trying to do, and we'll see if the theory works in reality, that is to set market expectations, they're learning from japan, they're learning from the great depression, that if you say we're willing to reflight the economy, we think inflation is too low, unemployment is too high and we're willing to stimulate the economy to move it back in a correction that's more healthy, that if you do that and say that and commit to it over time that actually gets people to get off the sidelines of holding cash and get into making more productive investments in the future, riskier more productive investments, and that's exactly what we saw in the stock market today, moving out of cash and moving into things like equitys, think is a big plus. they want to see the long-term investments pick up. >> susie: let's talk under about the markets, david, because it seemed like the market reaction was not that
enthusiastic. i don't know what your take on it is. what do you think the message of the markets today was? >> i think it was reasonably enthusiastic. we did see long-term interest rates come down. we saw some improvement in the stock market. but i don't really buy the theory that by convincing people that rates will be low for a long period of time you can convince them that growth will be stronger, because the only way they do that is, they said economic conditions will warrant this, so they're saying the economy is going to be really soft, and you can't say that and then tell people but we're going to be there to help 20, 15, 2016, so i think it's a mixed message here p. and the other thing is you bring down rates to make it easier for people to borrow money, but you make it harder for banks to lend money, and i think we have to look at both sides here because i think they're discouraging lending as they are trying to encourage borrowing. >> susie: do you think that's true, diane, and also is there something more that the fed can do or really has it run out of bullets?
>> it's not run out of the bullets. it considers its communication strategy yet another tool in its tool box, and it's one that's been hesitant to use in its full array. actually having inflation targeting, we saw the fed chairman say we have an inflation target basically today of 2% so, they didn't have to say we're managing inflation expectations, they said if 2% inflation is where we feel it should be, it below that so we'll keep working until we can get it back up, that's to try to avoid the lesson of japan, avoid the sense of going to be cheaper tomorrow, you keep buying it. >> susie: quickly because we have half a minute left, david, i want to ask you this. lower interest rates, that's great if you're a borrower, not so great if you're a safer. so what should people do whether they're an investor, a safer, a business owner? what should they be doing with their money given that interest rates are going to be low for a couple years? >> well, i think this is a reason to be a little overweight stocks and under weight fixed income. i think there's a lot of risk into the long end of the bond market right now, and stocks do look cheaper.
so i think it is a message to investors, yes, save the money, but then invest the money. it's not enough to put it under a mattress, you've got to put it into something that will grow, like the stock market, in the long run. >> susie: thank you both for coming on the program, we appreciate your time. >> thank you. >> susie: we've been speaking with diane swonk of miz row financial and david kelly at j. p. morgan funds. >> tom: stocks finished higher as investors welcomed the fed's pledge to keep interest rates low longer. the closing numbers, the dow rose 81 points, the nasdaq added 31.6 and the s&p 500 was up 11 points. trading volume was higher, with 829 million shares moving on the n.y.s.e. and just under two billion shares on the nasdaq. >> susie: still ahead, in tonight's "market focus," apple is on top of the world as its stock soars, making it the world's most valuable company.
>> tom: as the federal reserve said again today, it's not worried about overall inflation, but if you've looked at the prices at the grocery store recently, you know food prices have been rising sharply the past year. but you probably haven't noticed much of a change on the menu at your favorite restaurant. as erika miller explains, many restaurant owners are getting creative in order to absorb the increases. >> reporter: this is no ordinary bread pudding. it's a cost-saving strategy. the dessert was made out of leftover baguettes. marlo scott, the owner of sweet revenge in new york city, is working hard to eliminate waste in the face of rising ingredient prices. she is also retooling recipes. so, no more walnuts in the salad. >> we decided to make chipotle pumpkin seeds, which have the same kind of fun texture crunch, add even more fun flavor to the salad, and the price for seeds is nothing compared to the price
for nuts. >> reporter: but it's not just nut prices going nuts. pasta, beef, dairy, coffee and shortening have all risen double digits in the past year. food consultant lisa chodosh has been helping sweet revenge closely track expenses. she says runaway costs are a common reason many new restaurants fail. >> it's remarkable, if you go into most operations and point to a plate of food, and say "do you have just a general idea of what that costs you?" most people don't know. >> reporter: there are about 580,000 restaurants in the us-- more than 20,000 in new york city alone. many of them are small businesses, and they're trying to shave off pennies from their costs any way they can in order to avoid raising prices. uptown, at petaluma, the owners are focused on filling more seats. >> we do certain specials or price-fixed meals that sort of control or contain our costs,
and that is still palatable to the customer, because we sort of know what their typical spend needs to be. >> reporter: the restaurant streamlined operations and now compares prices among several vendors before placing orders. it also buys meat differently. >> we've been working with the chefs, so instead of buying chicken breast, we buy whole chickens so we can take the scraps and make broth. >> reporter: keep in mind, it's not just higher food costs taking a bite out of restaurant profits. in many cases, rent and insurance costs are rising, too. >> the word "margins" is hardly ever used in the restaurant business. a really well-run operation is making a dime on a dollar. the fact is, this is a business not of even dimes. it's a business of pennies and nickels. >> reporter: many industry analysts are projecting food costs will rise 4% to 6% this year. so some restaurants may have no choice but to raise prices. >> i've tried to be very sensitive with respect to the economy, and keeping prices very, very affordable and reasonable and not raising them. but if the numbers prove otherwise, then i'll have to consider that.
>> reporter: but we're willing to bet anyone craving one of her scrumptious desserts won't mind kicking in an extra quarter or so. erika miller, "nightly business report," new york. >> susie: speaking of prices, j.c. penney is simplifying prices and putting an end to nonstop promotions. it's all part of new c.e.o. ron johnson's plan to revive the 110-year-old department store chain. he's the man who built apple's retail store strategy. in full-page ads, penney's explained the changes, saying "no more pricing games, just and, "we want to be your favorite store." another change coming to a pennys store near you? new plans to redesign floor space into as many as 100 smaller specialty shops focused on individual brands. >> tom: j. p. penny shares slipped just a fraction, following though a four times average. let's go to tonight's market focus.
>> tom: stock prices got a boost from the federal reserve in the middle of the day today. it was waiting and watching for the central bank this morning, with the s&p marking time with a fraction loss, but when the fed pledged to keep interest rates low for even longer, the market moved into positive territory, climbing to a gain of almost 1%. so, with the fed's help, the index is at its highest level since late july and up 20% since its october low. with the outlook for low interest rates, stock investors gravitated toward dividend paying sectors and those industries which could benefit from an improving economy. the utilities and materials sectors gained more than 1.5% each. industrial stocks added more than 1%. the fed may not be worried about inflation, but don't tell that to gold investors. gold prices jumped on the fed's outlook for record-low interest rates over the next two years plus. prices shot up about 2%, rallying back over $1700 an
ounce. it's gold's highest price since december. trading volume in gold futures was the heaviest since september. the american stock market had a new king of the hill for a short time today. apple eclipsed exxon this morning to become the biggest company by market value, but the day didn't finish that way. exxon shares gained only four cents, but its market value tonight stands at $418.1 billion. apple finished higher by 6% and a market value of $416.3 billion. after the closing bell, the focus fell on netflix. the company has had a tough year with a disastrous price hike and abandoned plans to split the company in two, but it ended the year with a strong performance. earnings came in much better than anticipated, beating estimates by 18 cents per share. perhaps the most positive sign was netflix stopped losing subscribers, which fled the service last summer. shares came into tonight's report with some optimism.
they were up about 2.5% during the regular session, but after returning to subscriber growth, shares jumped more than 10% in after-hours action-- above $105 per share. if that holds through tomorrow, it would be netflix's highest price since late october, but analyst at the motley fool, jason moser, say beware. >> i think i'm just gonna watch this one from the sidelines. it's a very volatile stock. it's really difficult to predict. it's a very fast-changing market. a lot of competitors out there. switching costs are still relatively low so while netflix came out with a good release, i'm still not convinced of a solid direction straight up from here. >> tom: while not straight up, shares of a couple of airlines continue climbing. u.s. airways rallied 17%. delta gained 6%. both were able to successfully raise airfares to fight against higher fuel costs. and that's tonight's "market focus."
as we mentioned in "market focus," gold saw a sharp rally off the federal reserve promise to keep interest rates at historic lows. i recently spoke to gold exchange-traded fund investor stephen cucchiaro of windhaven investments. i began by asking him why he thinks that promise could be a threat to higher gold prices.
it would be a short-term, people would be selling everything including gold. and then the next step would be how do the central banks react. and if after that if that causes europe to go into a more serious recession that drags the whole world down, enact a global easing in a big way, and if they do that could be the next big leg up on gold. >> tom: all this talk about europe and the federal reserve, that's the psychology of what about the fundamental, supply, production and demand? >> the supply of gold is relatively fixed. and it's really more of a demand issue. we think it's much more helpful to think of gold as an alternate form of money. we think it's helpful to think of the price as gold as not reflecting on the value of gold itself going up or down, but that gold is really stable, sits on the shelf, it doesn't change. you invest in gold through exchange traded funds, and some critics have pointed to
exchange traded fund with commodities like gold and the demand they have for the physical metal for pushing prices around. how do you respond? >> we need to make sure for our clients to the extent possible that the gold really is there, we've seen the audit reports, we've seen the process is that go through to val you the gold. and we are also aware that as the gold is done better ask better, there are other ways that people used to invest in gold, mutual funds, where they've lost market share and there's some talk that perhaps rumors were started by these other firms to try to talk negatively about the gold etf's to try to build back their market share. so we think that has to be treated with some suspicion. so we feel very good about our relationships with the providers of the gold etn's that yes that gold really there's in those vaults. >> tom: in the etf universe with so many funds to choose from, especially with precious metals, is gold the best precious metal etf? >> we think the gold is the
purest form of an alternate form of money and one reason we like gold is in that scenario where everything goes down, the economies goes down, money gets printed more and more, gold might be the only investment that goes up as an alternate form of money, where as the other precious melts might go down with the economy. >> tom: one of the trend lately has been looking for stock dividends. gold has no dividend. does that hurt? >> if you compare to it cash, cash has such a low interest rate, at least with gold that zero percent interest rate, coupled with the fact that over long periods of time gold tracks inflation, you could argue it's actually more favorable. steve cucchiaro, thank you. >> thank you, i really enjoyed speaking with you. when talking about gold, you also have to think about the dollar. on our website, nbr.com, go to "featured videos" to see a bonus interview about the outlook for the u.s. dollar. >> susie: here's what we're watching for tomorrow:
we'll see the december reports on durable goods and new home sales, and get the latest weekly numbers on new claims for jobless benefits. also tomorrow? the big cat. caterpillar reports earnings. we'll discuss the numbers and get the outlook from caterpillar c.e.o. douglas oberhelman. timothy geithner says he's a one-term man. the treasury secretary today said he does not plan to serve if president obama is elected to a second term in office. and while he said he was confident the president will be re-elected, geithner also said he was confident the president would have the privilege of having another secretary of the treasury. geithner is the last member of the president's original economic team. >> tom: the disgraced former c.e.o. of healthsouth will spend less time in jail. richard scrushy was re-sentenced today, and his prison term cut to just six years. he was originally sentenced to almost seven years for his bribery conviction back in 2006.
to keep interest rates low for a few more years, investors are chasing yield and some are taking on new risks. here's gerri walsh, president of the finra investor education foundation. >> investors currently find themselves in a difficult investing environment. yields on fixed-income investments are at historically low levels, and stock returns have been quite volatile. as we begin a new year, what is an investor to do? some investors are chasing return, meaning they are putting their assets into riskier and sometimes esoteric products that promise higher yields and returns than they can obtain in more traditional investments. these products range from easily understood investments like high-yield bonds to complex vehicles like leveraged and inverse e.t.f.s, reverse convertibles and other structured products. the beginning of a new year is a good time to remind investors that when they invest in products that promise higher returns, they are nearly always taking on more risk. investors should never make an
investing decision solely by looking at an investment's return, whether past or projected. higher returns come with higher risk, and if investors do not fully understand how an investment works and what risks and fees they are taking on, they probably shouldn't invest. i am gerri walsh. >> tom: those lattes add up and quick. a as to shows that u.s. workers spend more than $1,000 a year on coffee and double that on lunches. this comes to us from a staffing firm, it reveals differences though between the sexes about how we spend our coffee and lunch money. the average worker spending 37 a week, men spending more, 47 versus what women send at 27. that pattern twas same for coffee, with men spending more than women. susie, age also makes a difference. younger worker, also spending more on coffee than older colleagues and starbucks earnings are tomorrow. >> susie: i still can't get my mind around a r $1,000 on
coffee. >> tom: yes. >> susie: and that's probably low. >> tom: at $4 a cup it adds up quickly. that's "nightly business report" for this evening. thank you for joining us. have a great night, susie. >> susan: you too, tom. thanks for watching everyone. hope you see you all again right here tomorrow night. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org